According to the Department of Labor, more than 48 million private wage and salary workers are currently covered by employer-sponsored pension plans in the United States. Whether and how to divide a participant's interest in a pension plan are often important considerations in separation, divorce, and other domestic relations proceedings.

Even though the division of marital property is governed by state domestic relations law, any assignment of pension interests in a private plan are governed by federal law under the Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986 ("the Code"). Federal law requires that a pension plan pay benefits only to participants and their beneficiaries. Federal law prohibits a pension plan from assigning benefits to third parties except in circumstances specifically authorized by federal law. Federal law does allow payment of pension benefits to the former spouse, child or dependent of a participant in a pension plan if the court has entered a qualified domestic relations order ("QDRO"). The law states specific requirements which must be met before a pension plan can determine an order to be qualified.

What is a Qualified Domestic Relations Order?

A QDRO is a court order which is used to divide pension rights between divorcing spouses, or to collect alimony or child support from a private employee benefit plan. QDROs are complex legal documents and should be prepared only by a qualified and experienced attorney.
 
How do you divide governmental pension plans?

A public or governmental plans, such as military pensions, federal, state, county, or city retirement plans also require a domestic relations order ("DRO") to divide their pensions in a divorce. DROs are similar to QDROs but are governed by their respective governmental codes rather than ERISA. Most DROs are referred to as QDROs when discussing the division of pension benefits.

Why should I retain an expert to prepare a QDRO?

A QDRO can be "loaded" to favor one party or the other. It is important that the participant or former spouse consult with someone who has knowledge in this complex area and can work on the client's behalf to protect his or her interests and divide the benefit as fairly as possible. The parties may also want to retain a QDRO attorney as a court appointed expert, and as such that attorney would draft the QDRO as fairly as possible and provide both parties with the various options and limitations in the Plan.

Why not just use the model language often provided by a plan administrator?

Model language is often designed to benefit the plan and the participant. These documents should be used cautiously and modified as necessary to create a balanced division.

Why should I get a QDRO now rather than wait until my former spouse retires or I need the money?

Delaying in obtaining a QDRO may result in losing valuable rights. You also run the risk of forfeiting all of the benefits which were awarded to you in your divorce. Your rights may be lost if, before your QDRO is completed, your former spouse retires, becomes disabled, remarries, dies, quits or is fired, withdraws funds from the plan before retirement, or takes out a loan from the plan. Ideally, the process of obtaining a QDRO should be completed early in the divorce process and occur at the same time as the parties negotiate the division of marital property, maintenance, child support and other divorce-related issues. However, if the QDRO is not completed before the divorce, it should be completed soon thereafter. A QDRO may also be obtained anytime for child or spousal support.
 
How long should the process take?

Generally, the process takes 3-5 months. If possible, the QDRO should be pre-qualified by the plan before it is filed with the court.

Who should draft QDROs?

ERISA, governmental codes, and retirement plan rules are complex and always changing. Each plan has its own variety of features, requirements, and interpretations of ERISA. A QDRO must be tailored to meet the participant and former spouse's specific needs in that unique plan. QDROs should be drafted by an attorney who has knowledge and expertise in the area of pension plan division. For that reason, many family law attorneys refer their clients to an attorney who specializes in drafting QDROs.

Is it better to divide pension assets or take another marital asset as a trade?

The answer depends on the participant and former spouse's individual situation such as age, health, employment, tax issues. The parties should consult with a pension actuary and their financial expert to make an informed decision. The participant could also "buy-out" the former spouse's interest which would typically require a pension actuary to perform the valuation.

What are some examples of plans that need division orders?

All Private (ERISA) Qualified Plans
    Defined Benefit Plans
    Defined Contributions Plans
    Savings Plans
    Cash Balance Defined Benefit Plans
    Profit Sharing Plans
    401(k)s and other cash deferred plans

California Public Plans
    California Public Employees Retirement System
    California State Teachers' Retirement System
    Los Angeles County Employees Retirement Association (LACERA)
    Los Angeles City Employees' Retirement System (LACERS)
    City of Los Angeles Fire and Police Pension
    457 Deferred Compensation Plan
    State of California Savings Plus Program (SPP)

Federal Public Plans
    Civil Service Retirement System
    Federal Employees Retirement System
    Military pensions
    Thrift Savings Plan

Note that most midsize to large employers, public and private, offer at least two (2) retirement plans, a defined benefit plan and a defined contribution plan.